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Income Tax Appellate Tribunal, “B” BENCH KOLKATA
Before: SHRI RAJPAL YADAV & SHRI GIRISH AGRAWAL
PER GIRISH AGRAWAL, ACCOUNTANT MEMBER:
This appeal filed by the Revenue is against the order of Ld. CIT(A), Jalpaiguri vide Order No. 116/CIT(A)/JAL/2016-17 dated 03.07.2019 against the assessment order of DCIT, Circle-2, Jalpaiguri u/s. 143(3) of the Income-tax Act, 1961 (hereinafter referred to as the “Act”), dated 27.12.2014 for AY 2014-15.
At the outset, we note that this appeal was listed for hearing for the first time on 04.02.2020. The case was adjourned from time to time. Every time the notices issued through RPAD were returned with the postal remark “incomplete address”. This fact was brought to the notice of Ld. Sr. DR who then pointed out that assessee Shri Nirmal Palit has expired and his legal heirs are not traceable. Department was directed
Smt. Subbulakshmi Devadoss L/H of Lt. Nirmal Palit AY: 2014-15. vide order sheet entry dated 03.11.2022 to obtain the list of legal heirs and take steps for bringing them on record. The said order sheet entry is reproduced as under:
“The Revenue is in appeal before the Tribunal against the order of ld. Commissioner of Income Tax (Appeals), Jalpaiguri dated 03.07.2019 passed for A.Y. 2014-15.
2. This appeal was put on the Board first time on 04.02.2020. Thereafter case was adjourned from time to time and every time notices were issued through RPAD, which have been returned with the postal remark "incomplete address". On 21.06.2022, when this fact was brought to the notice of the ld. D.R., then he pointed out that the assessee has expired and legal heirs are not traceable. The Bench has passed the following order:- "At the time of hearing, the ld. Departmental Representative brought to our notice that the assessee has expired and the legal heirs could not be brought on record. It was further pointed out by the ld. Department Representative that Mr. Sunil Surana, represented the assessee before CIT (A) and upon being contacted qua pursuing this appeal by bringing legal heirs on record, he stated that legal heirs are not interested in pursuing the appeal. Accordingly we direct the ld. D.R. to obtain a report from the AO on the status of legal heirs of the assessee by next date of hearing. Further the Bench Clerk was asked to contact Mr. Sunil Surana and ask him to furnish the addresses of the legal heirs. The case is adjourned to 08.09.2022". Sonjoy Sarma Rajesh Kumar Judicial Member Accountant Member 3. In pursuance of this order, the Bench Clerk had contacted with Shri Sunil Surana, who appeared before the ld. CIT(Appeals). He expressed his inability to provide any details of the legal heirs and submitted that he is not holding any Power of Attorney on behalf of the legal heirs to prosecute this appeal. Considering the above situation, we adjourn the hearing to 17th January, 2023. Meanwhile the Department is directed to obtain the list of legal heirs and take steps for bringing them on the record. The ld. Assessing Officer may be apprised that if he fails to bring the legal heirs on record, then this Departmental appeal can be dismissed for want of prosecution without deciding on merit. We direct the ld. CIT (DR) to bring this order-sheet to the notice of ld. CIT (Admin) having administrative control over the ld. Assessing ·Officer for compliance of this order. Copy of this order-sheet be supplied to the Department.”
Pursuant to this direction, Ld. CIT, DR placed on record the details of legal heir of the assessee vide letter dated 14.01.2023. Against this Smt. Subbulakshmi Devadoss L/H of Lt. Nirmal Palit AY: 2014-15.
submission, the case was adjourned to 27.02.2023 since revised Form No. 36 was required to be placed on record by including the details of legal heir of the assessee. Revised Form 36 incorporating necessary modifications relating to the legal heir of the assessee was placed on record vide letter dated 23.02.2023 from the office of CIT, DR (ITAT)-I, Kolkata. The details of legal heir brought on record as contained in revised Form 36 are as under:
A. Name : Smt. Subbulakshmi Devadoss B. Relationship : Wife C. Address : B-204, Sarvam Apartment, Palilikaranai, Chennai-600100 D. e-mail ID : d_subbulakshmi@hotmail.com E. Mobile No. : 9176863779
Notice of hearing was sent to the legal heir of the assessee on the address stated above through RPAD as well as on e-mail ID. Since the notice has not been returned unserved, it is presumed that it has been duly delivered on the aforesaid address. On the date of hearing on 17.05.2023, none appeared on behalf of the assessee. The case was taken up for adjudication ex parte qua the assessee with the assistance of Ld. CIT, DR by taking into account the material available on record. In the course of dictation of the order, for the purpose of ensuring that the notice has been effectively served on the legal heir, a telephone call was made to her enquiring about the interest of the legal heir of the assessee to make any submission in the matter for which the department is in appeal. The legal heir Smt. Subbulakshmi Devadoss communicated
Smt. Subbulakshmi Devadoss L/H of Lt. Nirmal Palit AY: 2014-15. that she has nothing to do with the case referred to her though the notice of hearing was effectively served on her.
In the present case, the assessee has expired and is being represented by the legal heir. In this context, it is important to take note of the provisions of section 159 of the Act which deals with liability to discharge the tax demand by the legal representative, devolving on the deceased. The said section is contained in chapter “Liability in Special Cases A- legal Representatives” and is reproduced below for ready reference.
“Legal representatives 159. (1) Where a person dies, his legal representative shall be liable to pay any sum which the deceased would have been liable to pay if he had not died, in the like manner and to the same extent as the deceased. (2) For the purpose of making an assessment (including an assessment, reassessment or recomputation under section-147) of the income of the deceased and for the purpose of levying any sum in the hands of the legal representative in accordance with the provisions of sub-section (1),— (a ) any proceeding taken against the deceased before his death shall be deemed to have been taken against the legal representative and may be continued against the legal representative from the stage at which it stood on the date of the death of the deceased; (b) any proceeding which could have been taken against the deceased if he had survived, may be taken against the legal representative; and (c) all the provisions of this Act shall apply accordingly. (3) The legal representative of the deceased shall, for the purposes of this Act, be deemed to be an assessee. (4) Every legal representative shall be personally liable for any tax payable by him in his capacity as legal representative if, while his liability for tax remains undischarged, he creates a charge on or disposes of or parts with any assets of the estate of the deceased, which are in, or may come into, his possession, but such liability shall be limited to the value of the asset so charged, disposed of or parted with.
Smt. Subbulakshmi Devadoss L/H of Lt. Nirmal Palit AY: 2014-15.
(5) The provisions of sub-section (2) of section-161, section-162 and section- 167, shall, so far as may be and to the extent to which they are not inconsistent with the provisions of this section, apply in relation to a legal representative. (6) The liability of a legal representative under this section shall, subject to the provisions of sub-section (4) and sub-section (5), be limited to the extent to which the estate is capable of meeting the liability.” 5.1. From the above section, it is noted that section 159(2)(a) provides that any proceeding taken against the deceased before his death shall be deemed to have been taken against the legal representative and may be continued against the legal representative from the stage at which it stood on the date of death of the deceased. In the present case, assessee expired during the pendency of this appeal before the Tribunal which is taken up in continuity with the legal representative brought on record by the Department. We further note that sub-section (6) of section 159 provides that liability of legal representative shall be, inter alia, limited to the extent to which the estate is capable of meeting the liability.
With this back-drop, we take up the matter to adjudicate upon, for which the grounds taken by the revenue are reproduced as under:
“1. Whether on the facts and circumstances the Ld. CIT(A) erred in Rs.3,53,45,260/- deleting the addition made on account of bogus sundry creditor of Rs. 7,74,32,498/- without appreciating the fact that the assessee filed to produce most of the creditors. Further, the genuineness of transaction, identify and creditworthiness of the sundry creditors could not be proved.
2. Whether on the facts and circumstances, the Ld. CIT(A) erred in deleting the addition of Rs. 7,74,32,498/- considering that the amount outstanding against sundry creditors are related to earlier years without appreciating the fact that sundry creditors shown in balance sheet of the assessee as on 3l.03.2014 was Rs. 8,29,63,210/- as against Rs. 55.21.712/- as on 31.03.2013.
3. That the Ld. ClT(A) erred in deleting the addition made on account of sundry creditor of Rs. 7,74.32,498/- on the ground that the addition of sundry creditors is not valid as the Assessing Officer has not rejected the purchase bills and vouchers etc. Without appreciating the fact that the AO had discussed in detail that such bills and vouchers were defective.”
Smt. Subbulakshmi Devadoss L/H of Lt. Nirmal Palit AY: 2014-15.
Brief facts of the case are that assessee is a medical practitioner who filed his return of income on 30.11.2014, reporting total income of Rs.14,07,010/-. Case of the assessee was selected for scrutiny through CASS on the following ground:
(i) large amount of sundry creditors, (ii) large increase in sundry creditors with respect to turnover as compared to preceding year. 7.1 Statutory notices u/s. 143(2) and section 142(1) were issued and duly served on the assessee. In the course of assessment, Ld. AO, among other things, required the assessee to furnish bifurcation of sundry creditors along with their complete name and postal address. Assessee did not furnish the details despite several reminders from the Ld. AO, who then finally issued a show cause notice dated 03.10.2016, wherein Ld. AO stated that –
“As per audited accounts for the financial year relevant to A. Y. 2014-15, you have shown huge sundry creditors amounting to Rs.8,29,63,210/- On perusal of earlier return for A. Y. 2013-14, there appeared no sundry creditors. So, it is apparent that all those sundry creditors relates to the F. Y. 2013-14 (i.e A. Y. 2014-15). Further, in this regard as per questionnaire issued to you along with notice 142(1) dated 02/05/2016, you were asked, inter alia, to furnish details of the sundry creditors, i.e. complete name and postal address of all the sundry creditors etc. to verify the genuineness of the transactions. But, you have failed to furnish the information without showing any reasons. Subsequently, while hearing your case, dated 26.08.2016 and again on 05.09.2016, your A/R failed to furnish the details of the so called sundry creditors. However, during the course of hearing dated 5.9.2016, you’re A/R sought time to furnish the details of sundry creditors and accordingly the case was adjourned to 13.09.2016. But, this time also neither you nor you’re A/R appeared and filed the details of the sundry creditors till date. So there is sufficient reasons to treat all those sundry creditors amount to Rs. 8,29,63,210/- as shown by you as false, that is why you are not able to furnish details of the so called sundry creditors in spite of giving several opportunities. Thus, in absence of the details of the sundry creditors, the identity and credit worthiness of the so called creditors as well as genuineness of the transactions with the so called creditors could not be verified. Under the circumstances, you are hereby asked to show cause why the sundry creditors amount of Rs.8,29,63,210/- shall not be treated as false and added the amount to your total income as false liability. In this regard, you are asked to Smt. Subbulakshmi Devadoss L/H of Lt. Nirmal Palit AY: 2014-15. furnish the reply of the show cause letter within 7(seven) days of receipt of this letter, failing to which it would be assumed that you have got no objection in making addition of the sundry creditor amount to your total income as false liability. Please note that the case being barred by limitation on 31.12.2016 no further time will be entertained under any circumstances. Hence please treat the matter as MOST URGENT." 7.2. In compliance to this show cause notice, assessee furnished a list of sundry creditors for which it was stated that these sundry creditors were payable by the assessee against the purchase of building material which in turn were utilised in the construction of Coochbehar Mission Hospital Pvt. Ltd., (CMHPL) wherein assessee is one of the directors. In respect of investment of Rs.8,64,12,000/- reflected in the Balance Sheet of the assessee on the asset side, it was stated that this represents investment by the assessee in equity shares capital of CMHPL in which the building for nursing home was constructed.
7.3. Owing to partial compliance by the assessee, another letter was issued by the Ld. AO dated 08.11.2016, wherein detailed observations were made by the Ld. AO in respect of the sundry creditors amounting to Rs.8,29,54,210/- and the investment in equity shares of Rs.8,64,12,000/- in the CMHPL, seeking explanation from the assessee. In this letter, Ld. AO compared the details with the financial statement for the immediately preceding year i.e. AY 2013-14 also. Ld. AO also called for the details in respect of investment made by the assessee in equity shares of CMHPL as appearing in the Balance Sheet to explain the source of the said investment, failing which it will be treated as unexplained investment. In respect of sundry creditors also, Ld. AO provided one more opportunity to the assessee to prove the identity of the creditors, their creditworthiness and the genuineness of the transactions, failing which they will be treated as bogus liability.
Smt. Subbulakshmi Devadoss L/H of Lt. Nirmal Palit AY: 2014-15.
7.4. In response to this letter, assessee filed written submission, which is reproduced in the impugned assessment order. Assessee claimed that he has been allotted shares in CMHPL against the payments made by him to the suppliers of building material for the construction of nursing home of CMHPL. Assessee thus, claimed that investment in share capital of CMHPL has been made against the liability owned by the assessee towards sundry creditors belonging to CMHPL.
7.5. On the submissions made by the assessee, ld. AO made detailed examination and enquiry and arrived at certain observations which are noted as under:
(i) During the year under consideration, assessee claimed to have purchased materials from 71 creditors totalling to Rs.7,74,32,498/-, all of them being individual suppliers. Without making any payments, assessee has shown these sundry creditors. It raised doubt on the genuineness of the transactions since nothing has been paid during the year.
(ii) There are various discrepancies which have been noticed by the Ld. AO on the documents furnished by the assessee, such as :
(a) Discrepancies in challans wherein they do not contain VAT/CST no. but only PAN. Also, there is no mention of challan serial Nos. There is no mention of description of the goods as to brand/make of the product/material supplied.
(b) Discrepancies in ledger account. The information given in the accounting entries contains the narration as “building material suppliers”. Further, the print out of ledger account
Smt. Subbulakshmi Devadoss L/H of Lt. Nirmal Palit AY: 2014-15. of 71 sundry creditors are in the same format and same fonts, raising a doubt on the genuineness of the same.
(iii) Certain creditors were produced before the ld.AO and on enquiry it was found by the ld. AO that they had not received any payment from the assessee against the supply of goods though they have admitted to have supplied the goods to the assessee for construction of nursing home. Based on the above enquiries and examination, Ld. AO arrived at the conclusion that the so called sundry creditors are not genuine.
7.7. Ld. AO held that sundry amount shown by the assessee against the investment made in the share capital of CMHPL for its construction of its nursing home are bogus and not genuine. He thus completed the assessment by making an addition of Rs.7,74,32,498/- as unexplained bogus liability. Aggrieved, assessee went in appeal before the Ld. CIT(A).
Submissions made in the course of assessment were reiterated before the Ld. CIT(A). It was stated by the assessee that in the year under consideration, sundry creditors appearing in the Balance Sheet of the assessee were adjusted against the share allotment account to reflect investment in share capital of CMHPL. Ld. CIT(A) allowed the appeal of the assessee by noting that “as abstracted from the Balance Sheet of the company, it is clear that the entire sundry creditors are of the earlier years not of the year under consideration.” In giving relief to the assessee, Ld CIT(A) also observed that Ld. AO has accepted the investment made by the assessee in equity shares in nursing home and that the shares have been allotted by CMHPL on account of supply of materials for its building construction. Ld. CIT(A) also observed that adverse view taken by the Smt. Subbulakshmi Devadoss L/H of Lt. Nirmal Palit AY: 2014-15.
Ld. AO as to fictitious sundry creditors against the bogus supply of building material of nursing home has no basis.
With the able assistance of Ld. CIT, DR, we have gone through the observations and findings of the authorities below in their respective orders placed on record. We have also taken note of the statement of fact filed before the Ld. CIT(A) along with Form 35. From the details captured in the order of Ld. CIT(A) containing summary from FYs 2009-10 to 2012-13, which are years preceding to the year under consideration, wherein details in respect of share application money pending allotment, sundry creditors, civil construction, secured loan and unsecured loan, we note that assessee recognised the sundry creditors in his Balance Sheet as on 31.03.2014 amounting to Rs.8,29,54,210/-. Against this credit appearing in the Balance Sheet of the assessee in the year under consideration, on the asset side an investment in the share capital of CMHPL has been reported, amounting to Rs.8,64,12,000/-. We also take note of the fact that Ld. AO made enquiry and called for the explanation from the assessee in respect of both, the sundry creditors appearing on the liability side as well as the source of investment in the share capital reported in the asset side of the Balance Sheet of the assessee for the year under consideration. Assessee has explained the source of investment made in the share capital of CMHPL as the sundry creditors which arose on account of building material supplies for the construction of nursing home belonging to CMHPL against which shares have been allotted to the assessee. Allotment of shares in CMHPL to the assessee has taken place in the year under consideration against which the sundry creditors have been reported in the Balance Sheet. Thus, the basis on which Ld. CIT(A) has concluded his finding is not correct vis-à- vis the assessee.
Smt. Subbulakshmi Devadoss L/H of Lt. Nirmal Palit AY: 2014-15.
9.1. Sundry creditors originally belong to CMHPL which may have arisen in the earlier years against the supplies of material to CMHPL for construction of its nursing home. However, when we look at the Balance sheet of the assessee as on 31.03.2014, wherein the investment in the share capital of CMHPL has been linked to these sundry creditors which are originally of CMHPL, it clearly suggests that the credit in the hands of the assessee has arisen in the impugned year. These sundry creditors have been explained to be the source of making investment in the share capital of CMHPL. We also take into account the observation and findings given by the Ld. AO in respect of various discrepancies on the documentary evidence placed on record which we have discussed in the above paragraphs.
Considering the factual matrix and the detailed discussion made above, we are not convinced by the basis adopted by the Ld. CIT(A) in giving relief by treating the sundry creditors as of earlier years and not of the year under consideration. This may be a correct fact in respect of CMHPL but when looking at the case of the assessee, it is a credit for the year under consideration appearing in his Balance Sheet as on 31.03.2014 which has been explained to be the source of making investment in the share capital of CMHPL. It is a case of issue of shares for consideration other than cash for which nothing is brought on record in respect of relevant compliance and documentary evidence under the Companies Act. Ld. CIT(A) has not enquired on this aspect which is vital before concluding to give relief to the assessee. Further, identity and creditworthiness of the creditors and the genuineness of the transactions have not been satisfactorily explained as required u/s. 68 of the Act, more importantly, when this information is stated to be the source of investment in the share capital of CMHPL. Therefore, we set
Smt. Subbulakshmi Devadoss L/H of Lt. Nirmal Palit AY: 2014-15. aside the finding given by Ld. CIT(A) and restore the order of Ld. AO wherein addition has been made. We also note that even if we presume that the basis adopted by the ld. CIT(A) is correct then also the nature and source of making an investment in the share capital of CMHPL by the assessee remains unexplained when no payments have been made to the stated 71 sundry creditors and, therefore the relief granted by Ld. CIT(A) on the basis of considering sundry creditors as of earlier years would not hold field to bring the assessee out of the burden casted on him to explain the source and nature of investment made by him in the share capital of CMHPL. Accordingly, we allow the grounds taken by the Revenue.
In the result, appeal of the revenue is allowed.
Order pronounced in the open Court on 29th May, 2023.